IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 04.05.2016
+ W.P.(C) 12325/2015 & CM No. 32738/2015
UNITECH HOLDINGS LIMITED ..... Petitioner
versus
DEPUTY COMMISSIONER OF INCOME TAX ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Salil Aggarwal, Mr Prakash Kumar and
Mr Madhur.
For the Respondents : Mr Dileep Shivpuri, Senior Standing counsel
with Mr Sanjay Kumar.
CORAM:
JUSTICE S.MURALIDHAR
JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. Unitech Holdings Limited (hereafter 'the Assessee') has filed the
present petition under Article 226/227 of the Constitution of India
impugning a notice dated 11th December, 2014 issued under Section 148
of the Income Tax Act, 1961 (hereafter 'the Act') initiating re-assessment
proceedings for Assessment Year (AY) 2010-11. The Assessee further
impugns an order dated 9th November, 2015 disposing of the Assessee's
objections to the initiation of re-assessment proceedings.
W.P.(C) 12325/2015 Page 1 of 18
2. The Assessee is a Non Banking Financial Company (NBFC) and is
wholly owned subsidiary of Unitech Limited, a widely held public
company, which is engaged in, inter alia, the business of construction and
development of real estate.
3. The Assessee filed its return of income for AY 2010-11 on 12th
October, 2010 declaring an income of Rs.35,22,210/-. The said return
was picked up for scrutiny and, thereafter, an assessment order under
Section 143(3) of the Act was passed on 26 th March, 2013 assessing the
Assessee's income at Rs.8,84,66,800/-.
4. Aggrieved by the aforesaid assessment order, the Assessee
preferred an appeal before the Commissioner of Income Tax (Appeals)
[hereafter 'CIT(A)']. The said appeal was allowed by CIT(A) by an order
dated 28th March, 2014 and all additions and disallowances made by the
Assessing Officer (hereafter 'AO') were deleted.
5. Thereafter, the Assessee received the impugned notice dated 11th
December, 2014 under Section 148 of the Act, inter alia, stating that the
AO has reason to believe that the Assessee's income chargeable to tax in
respect of AY 2010-11 had escaped assessment within the meaning of
Section 147 of the Act and proposing to initiate the re-assessment
W.P.(C) 12325/2015 Page 2 of 18
proceedings. By the said notice, the Assessee was called upon to furnish a
return of income for AY 2010-11 within a period of 30 days from the date
of service of the said notice.
6. The Assessee requested for the reasons recorded for initiating re-
assessment proceedings, which were furnished by the AO under the cover
of a letter dated 1st July, 2015. On receipt of the aforesaid reasons, the
Assessee filed its objections which were disposed of by the impugned
order dated 9th November, 2015.
7. The reasons recorded by the AO for initiation of the re-assessment
proceedings indicate that during the assessment proceedings pertaining to
the Assessee's holding company, Unitech Limited, it was noticed that
Unitech Limited had transferred shares in three joint venture companies,
namely, Unitech Developers & Projects Limited, Unitech Hi-Tech
Structures Limited and Unitech Realty Projects Limited, to the Assessee.
The said shares were transferred at the cost price reflected in the books of
M/s Unitech Limited, which was significantly lower than the book value
of those shares calculated on the basis of the net worth of the said
companies.
W.P.(C) 12325/2015 Page 3 of 18
8. According to the AO, the book value of the shares of the aforesaid
three companies transferred by M/s Unitech Limited on the date of the
transfer/sale - as on 31st March, 2010 - was Rs.3,61,40,20,487/- and the
said shares were transferred at the cost price of Rs.41,15,79,320/-. The
AO alleged that no working of the fair value of the said shares in question
was available at the time of sale/transfer for justifying the value at which
they were transacted and on the said basis, the AO recorded that "I have
reasons to believe that the difference in the book value of the shares and
the cost incurred by the assessee to purchase them is income of the
assessee u/s 28(iv) of the Income Tax Act, which has escaped
assessment".
9. Mr Salil Aggarwal, learned counsel appearing for the Assessee
referred to a questionnaire dated 23rd January, 2012 issued by the AO
during the course of the assessment proceedings for AY 2010-11, which
required the Assessee to furnish several details including: (i) certified
copy of the audited Balance Sheet and Profit and Loss Account for the
Financial Year 2009-10 along with all Schedules, Annexures, Auditor's
Report and Notes to the Accounts; (ii) details of business activities; (iii)
evidence of assets purchased/sold during the year above Rs.1,00,000/-;
W.P.(C) 12325/2015 Page 4 of 18
and details of transactions with parties covered under Section 40A(2)(b)
of the Act along with copies of the Accounts.
10. Mr Aggarwal stated that the queries raised by the AO were duly
responded to and referred to in the letter dated 20th February, 2013
enclosing therewith various documents including copy of Ledger Account
of M/s Unitech Limited, which indicated entries pertaining to purchase of
the shares in question, as well as a statement indicating the details of the
shares purchased. He laid emphasis on the opening words of the said
letter dated 20th February, 2013 which indicated that the said letter was in
compliance with the AO's demand for additional information. He
contended that it was evident that the Assessee had made full disclosure
in respect of the transactions of purchase of the shares in question and the
same had been examined by the AO during the assessment proceedings.
He contended that in the given circumstances, it was clear that the
impugned re-assessment proceedings were initiated only on a change of
opinion which was not permissible.
11. Mr. Aggarwal referred to the decisions of the Supreme Court in
CIT v. Kelvinator of India Ltd.: (2010) 320 ITR 561(SC), and
Commissioner of Income-tax v. Usha International Ltd.: (2012) 348
W.P.(C) 12325/2015 Page 5 of 18
ITR 485 (SC) in support of his contention that the proceedings for re-
assessment could not be initiated on the ground of change of opinion.
12. Next, Mr Aggarwal contended that there was no tangible material
on the basis of which the AO could reasonably form a belief that the
income of the Assessee had escaped assessment. He argued that the sale
of shares by Unitech Ltd. at their cost price could not possibly lead to an
inference that the income of the Assessee, under Section 28(iv) of the
Act, had escaped assessment.
13. Countering the arguments advanced by Mr Aggarwal, Mr Dileep
Shivpuri, learned Senior Standing Counsel contended that the AO of
Unitech became aware that the shares of the three companies in question
had been transferred to the Assessee at a value below their book value,
during the course of the assessment proceedings relating to that company.
He submitted that this fact was not disclosed by the Assessee during the
course of its assessment proceedings for AY 2010-11 and was not in
knowledge of the AO at the material time. He contended that, therefore,
this information would constitute tangible material for re-opening of the
assessment.
W.P.(C) 12325/2015 Page 6 of 18
14. Mr. Shivpuri further submitted that the letter dated 20 th February,
2013 relied upon on behalf of the Assessee, only indicated that the
Assessee had disclosed the shares purchased by it and the value at which
such purchase had been made. However, the fair value of the said shares
was not disclosed and, therefore, no opinion could have been formed by
the AO in that regard. He contended that in the given circumstances, the
question of change of opinion did not arise and the AO could not be
faulted for initiation of reassessment proceedings. He also referred to
Explanation 1 to Section 147(1) of the Act and on the strength of the
same, contended that furnishing of a statement of the shares purchased
would not necessarily amount to disclosure within the meaning of first
proviso to Section 147(1) of the Act.
15. Mr Shivpuri also referred to the decision of the Supreme Court in
ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.: (2007) 291 ITR 500
(SC) and contended that at the stage of initiation of proceedings, the AO
was only required to form a prima facie opinion that the Assessee's
income had escaped assessment and the AO was not required to take a
final decision at that stage.
16. Next, he referred to the decision of the Supreme Court in Income
Tax Officer v. Selected Dalurband Coal Co. P. Ltd.: (1996) 217 ITR
W.P.(C) 12325/2015 Page 7 of 18
597 (SC) in support of his contention that the veracity or correctness of
information received for reopening the assessment would only be
determined during the course of the proceedings and not at the stage of
initiation of reassessment proceedings. He earnestly contended that the
opinion that Assessee's income had escaped assessment was the
subjective opinion of the AO and if he had formed such an opinion on the
basis of material available, the question whether the said material was
sufficient or could lead to such opinion, could not be made the subject
matter of enquiry by this court. He emphasised that so long as the AO
considered the material to be sufficient to form an opinion, the same
could not be questioned and all that was required to be looked into was
whether there was any nexus between the material discovered and the
AO's opinion. He submitted that, in the present case, the AO had felt that
the sale of the shares in question below their respective book values
indicated escapement of income and this opinion could not be questioned.
17. At the outset, we must note that the impugned notice under Section
148 of the Act has been issued within a period of four years at the end of
the relevant AY and, therefore, the first proviso to Section 147(1) of the
Act is not attracted; it is not necessary to establish that the income
chargeable to tax had escaped assessment by reason of the failure on the
W.P.(C) 12325/2015 Page 8 of 18
part of the Assessee to disclose fully and truly all material facts necessary
for his assessment. Consequently, Explanation 1 to Section 147(1) of the
Act - which provides that the production before the AO of accounts or
other evidence from which material evidence could with due diligence
have been discovered by the AO would not necessarily amount to
disclosure for the purposes of the proviso to Section 147(1) of the Act - is
not relevant for the purposes of this petition.
18. Now, turning to the facts of the present case, it cannot be disputed
that the transaction of purchase of the shares of the three joint venture
companies were subject matter of enquiry by the AO. The questionnaire
dated 23rd January, 2012 specifically called upon the Assessee to disclose
several details including transactions with related parties along with the
copies of the relevant accounts. Indisputably, details of such transaction
had been furnished along with the Ledger Accounts of various parties and
that included the Ledger Account of Unitech Limited in the books of the
Assessee. A bare perusal of the Ledger Accounts produced by the
Assessee indicates that the transaction relating to purchase of the shares
in question is reflected in those accounts. It is also apparent that the AO
had made enquiries and had called upon the Assessee to furnish further
W.P.(C) 12325/2015 Page 9 of 18
information in response to which the Assessee had filed the letter dated
20th February, 2013. The relevant extract of which is reproduced below:-
"In response to your additional requirements, enclosed
please find following documents/information as required.
xxxx xxxx xxxx xxxx
xxxx
2) Copy of Ledger A/c of M/s Unitech Ltd in the
books of the assessee company for the F/Y
2007-08, 2008-09 and 2009-10. Annex-2
In this regard, most humbly it is submitted that
the assessee company is a Non-Banking
Finance Company (NBFC Company) and is
investment arm of Unitech Ltd. Unitech Ltd
being 100% holding company of the assessee
company, transferred some investments related
with some of the companies to the assessee
company as on 30.03.10 & 31.03.10. The detail
of such transfers is although reflected in the
ledger a/c of Unitech Ltd which is enclosed
here-in-above and is further specified as per the
detail enclosed herewith. Annex-3
Further to above, it is brought to your kind
notice that at the end of the F/y 2009-10, the
assessee company became the 100% holding
company of Bengal Unitech Universal
Townscape Ltd and it is therefore advances of
Rs. 39.11 Cr was transferred to the assessee
company from Unitech Ltd and ledger A/c of
Unitech Ltd in the books of the assessee
company was credited accordingly.
Simultaneously Share Capital of this company
was transferred to the assessee company on the
same day."
W.P.(C) 12325/2015 Page 10 of 18
19. Annexure 3 to the aforementioned letter dated 20th February, 2013
indicated the details of transfer of investment as on 30 th March, 2010 and
31st March, 2010 and is reproduced below:-
ANNEXURE - 3
DETAILS OF TRANSFER OF INVESTMENT AS ON 30.03.2010 & 31.03.2010
30.03.2010 Unitech Amusement Parks Limited 250000000
Unitech Sai Private Limited 138600000
388600000
31.03.2010 Unitech Hitech Structures Limited 308320
Unitech Developers & Projects Limited 11103990
Unitech Realty Private Limited 400167010
411579320
20. It is apparent from the above that the transaction dated 31 st March,
2010 relating to transfer of investments in the three companies
aggregating to Rs.41,15,79,320/- was a subject matter of enquiry by the
AO. The AO having enquired into the transaction of sale and purchase,
and having examined the values at which the transactions had taken place
had not raised any further issue with regard to the transactions in
question. It plainly follows from the above that AO had satisfied himself
as to the entire transaction of purchase of shares including the
W.P.(C) 12325/2015 Page 11 of 18
consideration thereof which was duly reflected in the statement furnished
by the Assessee. Although the working relating to the books value of the
shares - assuming that that is relevant - is not available, it must be
presumed that the AO had satisfied himself as to the value of the
transaction and also that the same were held as investments by the
Assessee. This is so because the transaction itself had been enquired into
and the value at which the shares are transferred as well as the nature of
those assets in the hands of the Assessee whether held as investments or
as stock in trade - were plainly the most important aspects of the
transaction. Thus, it must be accepted that the AO, after application of
mind, had accepted that the shares in question were acquired by Assessee
from M/s Unitech Limited at their cost price and were held as
investments by the Assessee. It has been held in a number of decisions
that once it is shown that the AO had enquired into the transactions, it
must be assumed that he had examined the relevant aspects even though
the same have not been expressly referred to in the assessment order. In
Usha International Ltd. (supra), a Full Bench of this Court observed that
there may be cases where the AO may not have raised any written queries
but the issue may be so obvious and apparent that it would be contrary
and opposed to human conduct to assume that the same had not been
considered by the AO.
W.P.(C) 12325/2015 Page 12 of 18
21. In this view, we are unable to accept that AO had not formed an
opinion as to various aspects of the transaction in question, including its
value insofar as it is relevant for assessing the Assessee's income.
Consequently, we must accept the contention that the impugned notices
have been occasioned by a change of opinion. It is trite that a mere
change of opinion cannot constitute a reason for re-opening the
assessment. This has been authoritatively held by the Supreme Court in
Kelvinator of India Limited (supra) in the following words:-
"6. On going through the changes, quoted above, made to
section 147 of the Act, we find that, prior to the Direct
Tax Laws (Amendment) Act, 1987, reopening could be
done under the above two conditions and fulfilment of the
said conditions alone conferred jurisdiction on the
Assessing Officer to make a back assessment, but in
section 147 of the Act (with effect from 1st April, 1989),
they are given a go-by and only one condition has
remained, viz., that where the Assessing Officer has
reason to believe that income has escaped assessment,
confers jurisdiction to reopen the assessment. Therefore,
post-1st April, 1989, power to reopen is much wider.
However, one needs to give a schematic interpretation to
the words " reason to believe" failing which, we are
afraid, section 147 would give arbitrary powers to the
Assessing Officer to reopen assessments on the basis of "
mere change of opinion", which cannot be per se reason
to reopen. We must also keep in mind the conceptual
difference between power to review and power to
reassess. The Assessing Officer has no power to review ;
he has the power to reassess. But reassessment has to be
W.P.(C) 12325/2015 Page 13 of 18
based on fulfilment of certain preconditions and if the
concept of "change of opinion" is removed, as contended
on behalf of the Department, then, in the garb of
reopening the assessment, review would take place. One
must treat the concept of "change of opinion" as an in-
built test to check abuse of power by the Assessing
Officer. Hence, after 1st April, 1989, the Assessing
Officer has power to reopen, provided there is "tangible
material" to come to the conclusion that there is
escapement of income from assessment. Reasons must
have a live link with the formation of the belief. Our view
gets support from the changes made to section 147 of the
Act, as quoted hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only deleted the
words "reason to believe" but also inserted the word
"opinion" in section 147 of the Act. However, on receipt
of representations from the companies against omission
of the words "reason to believe", Parliament reintroduced
the said expression and deleted the word "opinion" on the
ground that it would vest arbitrary powers in the
Assessing Officer."
22. The aforesaid view has been reiterated in several decisions
thereafter. Thus the impugned notice is liable to be set aside for this
reason alone. However, for the sake of completeness, it would be
necessary to address the issue, whether the AO had any tangible material
for forming a belief that Assessee's income had escaped assessment.
23. It is well established that the AO's belief that an Assessee's income
has escaped assessment is a matter of his subjective opinion and a Court
W.P.(C) 12325/2015 Page 14 of 18
would not supplant its view over that of the AO. However, the question
whether the material could reasonably lead to a belief that an Assessee's
income had escaped assessment would certainly be open for examination.
This is an essential safeguard which is built in the language of Section
147 of the Act. As explained in ITO v. Lakhmani Mewal Das: (1976)
103 ITR 437 (SC), the words used in Section 147 of the Act are 'reason
to believe' and not 'reason to suspect'. Clearly, the tangible material
available with the AO should be such as to reasonably lead the AO to
believe that Assessee's income had escaped assessment. Even though
such opinion may be his subjective opinion, nonetheless, it cannot be
arbitrary or whimsical and must be one which a person could reasonably
form on the basis of some tangible material. In Rajesh Jhaveri Stock
Brokers Pvt. Ltd. (supra), the Supreme Court has explained that "the
word 'reason' in the phrase 'reason to believe' would mean cause or
justification". Thus, the AO must have cause or justification to believe
that the income had escaped assessment. Thus, even though, the AO is
not required to finally conclude at the stage of issuance of notice under
Section 148 of the Act that the Assessee's income has escaped
assessment, nonetheless, he must - on the basis of material in his
possession - reasonably form a belief that the Assessee's income had
escaped assessment.
W.P.(C) 12325/2015 Page 15 of 18
24. In Lakhmani Mewal Das (supra), the Court had explained that the
material available with the AO must have a live link with formation of
belief that the Assessee's income had escaped assessment.
25. Applying the aforesaid principles, in the facts of the present case, it
is difficult to accept that the sale of shares by Unitech Limited at its cost
price which is lower than the book value of the shares would result in
income (equivalent to the difference between the book value of the shares
and the cost price at which they were sold) in the hands of the Assessee.
The shares of the three companies in question are held as investments by
the Assessee and duly reflected by the Assessee as such. No objection has
been raised by the AO in this regard. In the circumstances, we find it
difficult to comprehend as to how the acquisition of investments by the
Assessee could lead to an inference that the Assessee had earned income
under Section 28(iv) of the Act - value of any benefit or perquisite arising
from business or profession - chargeable under the head profits and gains
of business or profession.
26. The reliance placed by Mr Shivpuri on the decision of the Supreme
Court in Selected Dalurband Coal Co. P. Ltd. (supra) is also misplaced.
In that case, the AO was in the possession of a letter of the Chief Mining
Officer which indicated that a joint inspection of the Assessee's mines
W.P.(C) 12325/2015 Page 16 of 18
have been undertaken by the officers of the Mining Department and the
representatives of the assessee (in that case) and it was found that
1,36,390 metric tonne of excess coal had been raised and 387 metric
tonne of surface coal was short. The State of West Bengal had, thus,
decided to charge royalty on the excess raising and the shortage in surface
coal which were, apparently, not reflected in the books. Clearly, the fact
that coal in excess of the declared quantity had been raised and 387
metric tonne of surface coal was short would lead to an inescapable
conclusion that coal had been sold outside the books and income resulting
therefrom had escaped assessment. Thus, plainly, the material available
with the AO had a logical link with the AO's belief that the assessee's
income had escaped assessment. It is, in that context, that the Supreme
Court held that the fact whether allegations made in the letter of the Chief
Mining Officer were correct or not would be a subject matter of the
proceedings. However, the letter gave a reasonably specific estimate of
excessive coal mining resulting in a belief that the Assessee's income had
escaped assessment. In that case, the nexus between material available
with the AO and the belief that the Assessee's income had escaped
assessment was clearly established. This is not so, in the present case.
W.P.(C) 12325/2015 Page 17 of 18
27. Mr Shivpuri's contention that AO's opinion is not amenable to
judicial review and thus the material on which such opinion is formed
also cannot be made a subject matter of enquiry, is without merit. Whilst,
we agree that the AO's belief that income of an assessee has escaped
assessment is a matter of his subjective satisfaction, the question whether
such belief could be reasonably formed and whether the material
available with the AO could possibly lead to such belief can certainly be
enquired into.
28. In view of the aforesaid, the impugned notice and the proceedings
initiated pursuant thereof are quashed. The petition is allowed. The
pending application also stands disposed of. However, the parties are left
to bear their own costs.
VIBHU BAKHRU, J
S.MURALIDHAR, J
MAY 04, 2016
RK
W.P.(C) 12325/2015 Page 18 of 18
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